Keg Technologies, Inc. v. Laimer

• Decision Date: 08 June 2006
• Docket Number: Civil Action No. 1:04-CV-0253-RWS.
• Citation: 436 F.Supp.2d 1364
• Parties: KEG TECHNOLOGIES, INC. and Kurt Hörger, Plaintiffs, v. Reinhart LAIMER, Sewer Equipment Corporation, Laimer Unicon, LLC, an SMK Rohrsdiförf GmbH, Defendants.
• Court: U.S. District Court — Northern District of Georgia

436 F.Supp.2d 1364

KEG TECHNOLOGIES, INC. and Kurt Hörger, Plaintiffs, v. Reinhart LAIMER, Sewer Equipment Corporation, Laimer Unicon, LLC, an SMK Rohrsdiförf GmbH, Defendants.

Civil Action No. 1:04-CV-0253-RWS.

United States District Court, N.D. Georgia, Atlanta Division.

June 8, 2006.

COPYRIGHT MATERIAL OMITTED

Ryan Altgeld Kurtz, William P. Eiselstein, Miller & Martin, Atlanta, GA, for Plaintiffs.

John Herbert Patteson, Jr., Byrne Davis & Hicks, Atlanta, GA, for Defendants.

ORDER

STORY, District Judge.

Plaintiffs KEG Technologies, Inc. ("KEG" or the "Company") and Kurt Hörger initiated this suit in early 2004 against Defendants Reinhart Laimer ("Laimer"), Laimer Unicon, LLC ("Laimer Unicon"), and Sewer Equipment Corporation ("SEC") (collectively, the "Laimer Defendants" or "Defendants"). They subsequently added SMK Rohrsdörf GmbH ("SMK") as a defendant. In the operative iteration of their Complaint, Plaintiffs assert claims for patent infringement (Count I); false advertising and unfair competition under § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a) (Count II); violations of the Computer Fraud and Abuse Act, 18 U.S.C. § 1030 (Count III); deceptive trade practices under the Georgia Uniform Deceptive Trade Practices Act, O.C.G.A. § 10-1-372(a) (Count IV); misappropriation of trade secrets (Count V); violations of the Georgia Computer Systems Protection Act, O.C.G.A. § 16-9-93 (Count VI); breach of fiduciary duties (Count VII); conversion (Count VIII); punitive damages (Count IX); injunctive relief (Count and attorneys fees. (Count XI), (See, Second Am. Compl. [52].)

On May 20, 2005, faced with Defendants' failure to respond to amended pleadings, engage in discovery, or comply with orders compelling participation in the discovery process, the Court held that Plaintiffs were entitled to a default judgment in their favor, "in the form and amount to be determined...." (See May 20, 2005 Order [68].) The Court denied a subsequently filed motion to reconsider. (See Oct. 28, 2005 Order [105].)

Since that time, Plaintiffs entered into a settlement with Defendant SMK, and agreed to dismiss SMK from this action with prejudice. The extent of the remaining Defendants' liability was the subject of a Rule 55(b)(2) hearing, held May 15-16, 2006. Having heard from the parties, the Court now considers the proper measures and forms of relief.

Discussion

Despite the numerous claims asserted by Plaintiffs in their Second Amended Complaint, the causes of action upon which this Court is requested to award relief are few. As an initial matter, Plaintiffs elected to voluntarily dismiss their claim for misappropriation of trade secrets at the outset of the damages hearing. They also informed the Court that they did not intend to seek damages on their claims for violations of the Computer Fraud and Abuse Act and the Georgia Computer Systems Protection Act, stating that the sums they incurred to assess the damage to their computer systems would be sought in a forthcoming motion for attorneys' fees and expenses. Plaintiffs additionally indicated that they sought only injunctive relief under the Georgia Uniform Deceptive Trade Practices Act, and that they would seek any damages associated with Defendants' conversion in the context of their claim for breach of fiduciary duties.

Consequently, at this juncture, the Court is asked to award damages only on Plaintiffs' claims for patent infringement, violation of the Lanham Act, and breach of fiduciary duties. Plaintiffs also seek injunctive relief. The Court addresses these requests below.¹ It begins, however, by evaluating Defendants' assertion that this Court's consideration of matters outside the pleadings in connection with their prudential standing challenge resulted in a de facto amendment of the Complaint, permitting them to now file a responsive pleading and continue with this case unencumbered by the previous default.

I. The Court's Consideration of Matters Outside the Pleadings on the Issue of Prudential Standing Does Not Mandate the Allowance of a Responsive Pleading

After their default, but before the Rule 55(b)(2) hearing, Defendants filed a motion to dismiss Plaintiffs' patent infringement claims, asserting that the Court lacked subject-matter jurisdiction. In particular, Defendants argued that Plaintiffs' initiation of this suit without joinder of a patent co-owner resulted in a prudential standing defect, and that this defect compelled the dismissal of Plaintiffs' patent claims.

The Court, while agreeing with Defendants that non-joinder of a co-owner presented a prudential standing issue, declined to dismiss Plaintiffs' patent claims on this ground. (See May 10, 2006 Order [133] at 7-12.) Observing that the Federal Circuit permits litigants to cure prudential standing deficiencies after the commencement of litigation, see Intellectual Prop. Dev., Inc. v. TCI Cablevision of Cal., Inc., 248 F.3d 1333, 1348-49 (Fed.Cir.2001), the Court found that the declaration of the patent co-owner, Mr. Hans Lutze, expressing his commitment to be bound by the outcome of this litigation, and thus, assuaging concerns about multiple suits, rectified the initial failing in prudential standing. (Id. at 9-12.)²

Defendants now argue that, by considering Mr. Lutze's declaration (and his subsequent assignment of his patent rights), this Court in effect permitted Plaintiffs to amend their Complaint post-default. The allowance of such an amendment, Defendants continue, requires that the Court now permit them to file an answer and continue with this litigation on the merits. The Court disagrees.

To be sure, this area of the law is not well-settled, and Defendants have presented a colorable argument. Indeed, they point out that in Intellectual Property Development, the decision upon which this Court based its holding, the "cure" to the prudential standing defect was accomplished by way of amendment to the plaintiffs pleading—namely, an amendment by the licensee adding the patent owner as a party. 248 F.3d at 1348.

But Federal Circuit precedent does not suggest to the Court an inflexible approach to remedying prudential standing deficiencies. In Intellectual Property Development, for example, the Circuit emphasized "that even appellate-level amendments to correct jurisdictional defects may be appropriate . ..." Id. at 1348 n. 15 (citing Mentor HIS, Inc. v. Medical Device Alliance, Inc., 240 F.3d 1016, 1019 (Fed. Cir.2001)). This flexibility, coupled with the fact that here, Plaintiffs' attempted "cure" did not take the form of an amendment adding a party or claim, but rather, an evidentiary showing that alleviated the concerns which support the prudential standing requirement, leads the Court to reject Defendants' challenge. The default will stand.

II. Appropriate Relief

Having rejected Defendants' challenge, the Court next turns to consider the relief to which Plaintiffs are entitled. In making this determination, the Court accepts as true the well-pled factual allegations of the Second Amended Complaint.

A. Patent Infringement

Plaintiffs allege that Defendants, both directly and indirectly, infringed United States Patent Nos. 6,089,243 and 5,992,432 (the "KEG Patents"). These patents, which describe hydrodynamic tools for cleaning pipes and channels, are alleged to be "unique and significant assets of KEG because they provide for increased water flow efficiency through improved fluid mechanics as water passes through the nozzle, which in turn reduces water consumption and operating costs for customers." (See Second Am. Compl. ¶ 16.) Plaintiffs contend that these attributes give their nozzles a competitive advantage in the marketplace. (Id.)

In their Second Amended Complaint, Plaintiffs identify as infringing products Defendants'"Grand Slam" and "Dredger" nozzles. (See id. at ¶ 46.) They characterize, "[u]pon information and belief," Defendants' infringement as "willful." (Id.) At the May 15-16, 2006 Hearing, Plaintiffs sought as damages their "lost profits" arising out of this alleged infringement, prejudgment interest, and requested that the Court treble any award.

"In patent law, the fact of infringement establishes the fact of damage because the patentee's right to exclude has been violated." Lindemann Maschinenfabrik GmbH v. Am. Hoist & Derrick Co., 895 F.2d 1403, 1406 (Fed.Cir.1990). The patentee, however, must nevertheless "prove the amount of damage." Id. "If the record permits the determination of actual damages, namely, the profits the patentee lost from the infringement, that determination accurately measures the patentee's loss. If actual damages cannot be ascertained, then a reasonable royalty must be determined." Hanson v. Alpine Valley Ski Area, Inc., 718 F.2d 1075, 1078 (Fed. Cir.1983); see also 35 U.S.C. § 284 ("Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court.").

Here, Plaintiffs seek their "lost profits," claiming entitlement to $281,497, exclusive of interest or enhancement. They arrive at this figure by pointing to Defendants' sales of "Grand Slam" and "Dredger" nozzles, multiplying the quantity of sales by KEG's list price for comparable nozzles, and multiplying the result by their profit margin on each such nozzle. (See Pl.s' Ex. 2.) The Court finds this showing manifestly insufficient to sustain an award of lost profits.

"To recover lost profits, a patent owner must prove `a causal relation between the infringement and its loss of profits.' [Cit.] More specifically, the patentee must show `a reasonable probability that "but for" the infringing activity, the patentee would have made the infringer's sales.'" Ericsson, Inc. v. Harris Corp., 352 F.3d 1369, 1377 (Fed.Cir.2003); accord Water Techs. Corp. v. Calco, Ltd., 850 F.2d 660,...